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February 17, 2020

Health Headlines – February 17, 2020


Proposed Budget Would Cut Medicare and Medicaid Funding in FY 2021 – On February 10, 2020, the White House unveiled its proposed budget (the Budget) for FY 2021, which would decrease funding for HHS by 10 percent.  Medicare and Medicaid would bear the brunt of these cuts.  For both programs combined, the Budget would reduce federal funding by $1.5 trillion over the next decade.  Although the President’s Budget is not binding and is not expected to pass in its current form, it nonetheless offers insight into the Administration’s current priorities for healthcare policy.

Like the budgets for FYs 2019 and 2020, this year’s Budget proposes to “eliminate wasteful spending in Medicare” by reforming graduate medical education payments, modifying payments to hospitals for uncompensated care, reducing Medicare’s coverage of bad debts, and establishing a need-based unified payment system for post-acute services.  Other familiar proposals to cut Medicare expenditures include paying the physician office rate to both off-campus provider-based departments and on-campus hospital outpatient departments.  One new cut proposed this year is to modify Medicare payment for hospice care provided to beneficiaries in skilled nursing and nursing facilities.  Several proposed cuts from last year’s budget are omitted this year, including last year’s proposals to eliminate pass-through payments for drugs, biologicals and biosimilars, and to exclude manufacturer discounts from the calculation of beneficiary out-of-pocket costs in the Medicare Part D coverage gap.  Also missing in this year’s Budget is last year’s proposal to reform and expand competitive bidding for durable medical equipment. 

For Medicaid, the Budget proposes to eliminate the enhanced federal match for Medicaid expansion enrollees.  The Budget would also implement work requirements (projected to save the program $152 billion over the next decade), continue the Disproportionate Share Hospital (DSH) allotment reductions, strengthen CMS’s ability to recoup improper Medicaid payments, and improve the process for recovering overpayments.  Not included in this year’s Budget are last year’s proposals to clarify definitions under the Medicaid drug rebate program to prevent inappropriate low manufacturer rebates, to test allowing state Medicaid programs to negotiate directly with drug manufacturers, and to impose greater penalties on manufacturers that report false information under the Medicaid drug rebate program.

The Budget proposes to improve access to rural health by expanding and enhancing access to Medicare telehealth services and modernizing payment for Rural Health Clinics (RHCs), which is projected to reduce payment to RHCs by $1.7 billion over the next ten years.  This year’s Budget also proposes several changes to kidney care, including allowing HHS to determine the appropriate number of organ procurement organizations (OPOs) and the appropriate recertification period for OPOs.  This year’s Budget does not include last year’s proposals to collect user fees from hospitals participating in the 340B program.

Providers would be wise to pay close attention to the proposals in this year’s Budget.  Even though the Budget will likely not pass the House or Senate in its current form, the Administration may attempt to use administrative fiat to implement some of these proposals.    

Reporter, Alek Pivec, Washington, D.C., +1 202 626 2914, apivec@kslaw.com.

Federal Appeals Court Strikes Down Arkansas Medicaid Work Requirements - On February 14, 2020, the United States Court of Appeals for the District of Columbia Circuit issued its decision in Gresham et al. v. Azar et al., Case No. 19-5094, a case challenging HHS’s Medicaid waiver that allowed Arkansas to impose mandatory work requirements in its state Medicaid program.  The three-judge panel affirmed the district court ruling striking down the HHS Secretary’s waiver as inconsistent with the explicit statutory goals of the Medicaid program.

Arkansas, through its private qualified health plans, expanded its Medicaid coverage consistent with the Affordable Care Act effective January 1, 2014.  In 2016, the state introduced its first version of the “Arkansas Works” program, which encouraged Medicaid enrollees to seek employment by offering voluntary referrals to the state Department of Workforce Services.  In 2017, Arkansas sought an amended waiver from the Secretary to cover several new requirements under the Arkansas Works program, including, among other changes, a requirement that beneficiaries aged 19-49 “work or engage in specified educational, job training, or job search activities for at least 80 hours per month” and document those activities.  Under this new version of the program, beneficiaries who failed to meet those requirements for any three months during a given plan year would be disenrolled and would not be eligible to re-enroll until the next plan year.  Under Arkansas’ work requirements approved by the Secretary, more than 18,000 Arkansas residents lost Medicaid coverage.

Under 42 U.S.C. § 1315(a), the HHS Secretary has the power to waive Medicaid’s minimum coverage requirements imposed on state Medicaid plans only in connection with an “experimental, pilot, or demonstration project” if “in the judgment of the Secretary, [the project] is likely to assist in promoting the objectives” of Medicaid.  The Secretary approved most of the new Arkansas Works program requirements, including the new work requirements, in a 2018 waiver letter that was the focus of the D.C. Circuit’s opinion.

In his letter, the Secretary found that the Arkansas Works program, as approved, would “assist in promoting the objectives of Medicaid” by “improving health outcomes,” “address[ing] behavioral and social factors that influence health outcomes,” and “incentiviz[ing] beneficiaries to engage in their own health care and achieve better health outcomes.”  Specifically, the Secretary’s letter stated that the new Arkansas Works requirements would promote the objectives of the Medicaid statute by encouraging beneficiaries to work or to participate in other “community engagement activities” that are “correlated with improved health and wellness.”

In August 2018, after the new work requirements took effect for beneficiaries aged 30 to 49, ten Arkansas residents filed suit in district court seeking declaratory and injunctive relief against the Secretary.  On March 27, 2019, the district court entered judgment vacating the Secretary’s approval of Arkansas’ new work requirements, finding them inconsistent with the text of the Medicaid appropriations provision indicating that the objective of Medicaid was to “furnish . . . medical assistance.”  According to the district court, the Secretary’s reasoning that the work requirements were consistent with the objectives of Medicaid because the activities encouraged by the new requirements were correlated with better health outcomes was flawed, as the explicit purpose of Medicaid was to expand coverage of beneficiary healthcare costs, not to improve beneficiary health outcomes more generally.  Because the Secretary failed to consider whether the work requirements would reduce Medicaid coverage despite his receipt of numerous comments on the matter, the Secretary’s waiver of coverage requirements was an arbitrary and capricious exercise of the discretion granted to him under the statute.

The Secretary appealed, arguing that the discretion granted to him under the Medicaid statute was unreviewable, and that his decision to grant the waiver was not arbitrary and capricious.  The D.C. Circuit panel rejected the Secretary’s argument that his discretion to grant a waiver is unreviewable, noting that the Administrative Procedure Act’s (APA) exception to judicial review for actions committed to agency discretion is “very narrow” and bars review only where “there is no law to apply.”  Because the Medicaid statute provides a legal standard for the Secretary’s decision whether to grant a waiver – specifically, that the waiver is “likely to assist in promoting the objectives of Medicaid” – the Secretary’s decision did not fall into the APA exception to judicial review.

The D.C. Circuit also rejected the Secretary’s second argument that his decision to grant the waiver was not arbitrary and capricious because it was “likely to assist in promoting the objectives of Medicaid” insofar as the Secretary found that the Arkansas Works program would promote better health outcomes for Medicaid beneficiaries.  Here, the D.C. Circuit adopted much of the district court’s reasoning, finding first that the Medicaid provision articulating the reasons underlying the appropriations of funds for the Medicaid program controls the Secretary’s discretion in granting waivers under 42 U.S.C. § 1315(a).  This provision, 42 U.S.C. § 1396-1, describes the purpose of Medicaid as “to furnish (1) medical assistance on behalf of [beneficiaries],” and a separate provision defines “medical assistance” as “payment of part or all of the cost of the following care and services or the care and services themselves.”  42 U.S.C. § 1396d(a).  In reading these provisions, the D.C. Circuit noted that other federal appeals courts, including the First, Third, Sixth, and Ninth Circuit Courts of Appeals, as well as the Supreme Court, have characterized the purpose of the Medicaid program as “provid[ing] joint federal and state funding of medical care for individuals who cannot afford to pay their own medical costs.”

While the Secretary’s letter acknowledged the possibility of coverage loss under the Arkansas Works program, the D.C. Circuit found that its treatment of the issue amounted to “[n]odding to concerns raised by commenters only to dismiss them in a conclusory manner” and thus did not bear the “hallmark of reasoned decisionmaking” on that issue.  The Secretary’s letter did contain analysis of the how the program “would assist in promoting” better health outcomes, but the D.C. Circuit found that analysis to be insufficient because it was aimed at “an entirely different set of objectives than the one we hold is the principal objective of Medicaid,” i.e., providing coverage.  Accordingly, because the Secretary’s analysis disregarded the primary purpose of the Medicaid statute, his decision to waive coverage requirements in approving Arkansas’ imposition of the work requirements was an arbitrary and capricious exercise of agency discretion.

To view a copy of the decision, click here

Reporter, David Tassa, Los Angeles, +1 213 443 4335, dtassa@kslaw.com.

Ohio Court of Appeals Holds that Price Transparency Law Is Unconstitutional Under the Ohio Constitution – The Ohio Legislature enacted a law that would have required healthcare providers to furnish patients with an estimate of their expected medical charges before receiving a medical service, but it enacted that statute as part of a larger legislative package that addressed other subjects.  On February 7, 2020, the Ohio Court of Appeals upheld the trial court’s decision that the price transparency law, R.C. 5162.80, was unconstitutional, because it violated the Ohio Constitution’s one-subject and three-considerations rule.  The Court of Appeals’ decision remains subject to possible review before the Ohio Supreme Court.

Article II, Section 15D of the Ohio Constitution requires that, when the legislature passes a bill, “[n]o bill shall contain more than one subject, which shall be clearly expressed in its title.”  The purpose of the one-subject rule is to prevent logrolling, that is, the practice of several minorities combining separate proposals, no one of which could have obtained majority approval separately, so as to obtain the enactment of an omnibus bill.  A bill may address multiple related topics, but a bill would fail the one-subject rule if it there is a “disunity of subjects” among its provisions.  

In a last-minute addition, legislators added the Ohio Price Transparency Law, R.C. 5162.80, to a Workers’ Compensation bill, Amended Substitute House Bill No. 52 of Ohio’s 131st General Assembly. The Court reviewed the legislative history of the bill and found that the Workers’ Compensation bill was intended to make appropriations to the Bureau of Workers’ Compensation and place conditions on certain Bureau programs.  The Court reasoned that the price transparency law was an unrelated add-on to the bill.

The proposed Ohio Price Transparency Law that was added to the bill would have required medical service providers to prepare cost estimates for services, products, and procedures. The Court noted that the Bureau is not a “provider of medical services” and there was no explanation, other than logrolling, for the addition of the Ohio Price Transparency Law to the bill. 

The Court also held that the addition of the Ohio Price Transparency Law violated the three-considerations rule in the Ohio Constitution.  The Ohio Constitution requires each house to consider a bill on three different days.  Here, the Ohio Price Transparency Law was added after the legislature had already satisfied the three-considerations rule for the overall bill, and the legislature had not voted with a two-thirds majority to suspend the three-considerations rule.

The Court upheld the trial court’s grant of partial summary judgment in favor of appellees and severed the price transparency provision from the bill. 

Reporter, Taylor Whitten, Sacramento, +1 916 321 4815, twhitten@kslaw.com.

D.C. Circuit Upholds CMS’s Calculation of Massachusetts’s Wage Index Rural Floor Despite Inaccurate Data – On February 11, 2020, the United States Court of Appeals for the District of Columbia Circuit upheld CMS’s determination of Massachusetts’s 2017 wage index rural floor despite the presence of ostensibly erroneous data. The Secretary’s decision not to re-calculate the wage index after CMS received Nantucket Cottage Hospital’s corrected submission led 39 Massachusetts hospitals to lose an estimated $115 million in Medicare reimbursements for 2017. 

Nantucket Cottage Hospital is the only rural hospital in Massachusetts and accordingly sets the rural floor for all hospitals in the state.  The hospital’s initial wage index submission purportedly contained several errors which deflated its hourly wage rate from approximately $60.50 to $43.78.  On May 15, 2015, CMS released its preliminary wage data files and requested all corrections for the data to be submitted by September 1, 2015.  On April 4, 2016, nearly seven months after the deadline for revisions had passed, Nantucket Cottage Hospital notified CMS of its errors and sought to correct the data submitted.  However, CMS did not re-calculate the wage index based on the hospital’s corrected submission and published the proposed 2017 wage index on April 27, 2016 and finalized the wage index on August 22, 2016.

The D.C. Circuit found that CMS did not act arbitrarily or capriciously in adopting the final rule, despite its knowledge of the errors in the data, because Nantucket Cottage Hospital failed to submit its corrections timely.  CMS argued that its intent is to calculate the wage index “from the best available data, consistent with [the] wage index policies and development timeline” and emphasized the importance of balancing accuracy with efficiency and finality.  The Court agreed and explained that CMS set a deadline, had a reasonable explanation for refusing to accept corrections submitted after the deadline, and thus, acted within its statutory discretion in enforcing the deadline.  A copy of the decision is available here.

Reporters, Daniel J. Hettich, Washington, D.C., +1 202 626 9128, dhettich@kslaw.com, and Kathryn T. Han, Los Angeles, +1 213 443 4336, khan@kslaw.com.

King & Spalding Client Alert: CFIUS Finalizes Rules Reforming Foreign Investment Reviews - On February 13, 2020, two Final Rules issued by the Committee on Foreign Investment in the United States’ (CFIUS) implementing most of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) became effective.  CFIUS, an interagency committee, reviews foreign investments in United States businesses and real estate and determines whether transactions should be unwound, blocked, or restricted due to national security concerns. FIRRMA is the first major expansion to CFIUS’ powers in a decade.

One of the rules expands CFIUS’ jurisdiction to review certain non-controlling foreign investments in United States businesses involving critical technology, critical infrastructure, and sensitive personal data.  The other rule expands CFIUS’ jurisdiction to review certain foreign investments in United States real estate.  Click here for a Client Alert issued by King & Spalding lawyers, Christine Savage, Alexis Early, Mark Wasden, Zachary Harmon, and Sumon Dantiki analyzing the two rules.

ALSO IN THE NEWS:

King & Spalding’s Healthcare and Life Sciences Teams Earn 2019 Law360 Practice Group of the Year Recognition – Law360 has named King & Spalding among its 2019 Practice Groups of the Year for both Health Care and Life Sciences.  This represents the fourth time that King & Spalding’s Life Sciences practice has received this honor and the third time for the Healthcare practice.   To read Law360’s profile on King & Spalding’s Healthcare practice, click here. To read Law360’s profile on King & Spalding’s Life Sciences practice, click here.

King & Spalding Webinar: HIPAA Compliant – and Revenue Generating – Responses to Subpoenas and Medical Records Requests After Ciox HealthOn February 25, 2020, at 1:30 p.m. EST, a panel of attorneys from King & Spalding LLP will host a webinar to discuss the issues raised by the production of medical records and other documents containing protected health information following the United States District Court for the District of Columbia’s decision in Ciox Health, LLC v. Azar, et al., No. 18-cv-0040 (D.D.C. January 23, 2020).  The panel will describe the various types of federal and state requests and demands for medical records that covered entities and business associates may receive, how to determine whether the law enforcement exception applies, how to deal with attorneys and others to ensure a request is valid while avoiding unnecessary burden and expense, and how to comply.

Participants will also receive:

  • Checklists;
  • Step-by-step response processes;
  • Examples of how state laws may interact with these federal requirements; and
  • Recommendations for ensuring that policies and procedures adequately describe the requirements and ensure compliance.

There is no charge to attend the webinar.  For more information and to register, please click here.

King & Spalding 29th Annual Health Law & Policy Forum – On March 16, 2020, King & Spalding LLP will host its annual forum in Atlanta, GA, focusing on the foremost legal and political developments impacting the healthcare industry.  This year’s Keynote Speaker is George F. Will, America’s foremost political columnist.  He will speak on healthcare’s role in the 2020 political campaign.  Other Forum highlights include:

  • Leading practitioners providing policy and regulatory enforcement updates, and other industry developments;
  • Special considerations healthcare providers face in pandemics; and
  • Developments in telehealth.

Registration closes on March 2, 2020, and capacity is limited.  For more information and to register, please click here.